The act of paying off one loan by obtaining another. There are several types of refinancing options. Refinancing your car loan is one option that could land you a better deal that lowers your monthly repayments. The couple reaches out to their bank and is able to refinance their existing mortgage at a new rate of 4%. Refinancing A Loan Meaning Low Interest Rates. This could be done to access cheaper interest rates, lower fees, or easier payment options to help you pay off your car loan sooner. Some of these refinancing options include: You can get a lower monthly mortgage payment and interest rate. The first is that interest rates in the overall economy can go up during the application process, making them no longer available. To repay a loan by taking out another loan. … You get a new loan, pay off your old mortgage and then make payments toward your new loan when you refinance. Refinancing. A mortgage recast takes the remaining principal and interest payments of a mortgage and recalculates them based on a new amortization schedule. In addition, a refinancing usually requires a closing and transaction fee that may be expensive. It would add 10 years to the total time to pay off the mortgage. The new loan would have lower monthly payments, but it would be like starting over at a lower rate. Borrowers tend to refinance when interest rates fall. This option is best if you're trying to save money on your monthly payment or switch your loan from an adjustable rate to a fixed rate. During the European sovereign debt crisis, the acronym LTRO was coined to represent "long-term refinancing operations", which were used by the European Central Bank (ECB) to lend money at very low interest rates to eurozone banks. This might sound complicated, but it’s simply the amount of your home you own outright, compared to the amount that is secured against a mortgage. There are two main reasons why this might not be the case. This differs from a cash-out refinance. Rate and/or term refinancing: This is what I would refer to as "standard" refinancing. Financing involves borrowing a specific amount of money over a length of time at an agreed-upon interest rate. Enjoy discounts with our Wealth Package, saving money to pay off your loan sooner. The most important interest rate set by the ECB is the main refinancing rate or minimum bid rate. “Refinancing a home loan” is the term used when a homeowner swaps mortgages. To renegotiate or replace the financing of , usually to obtain a lower interest rate. Refinance rates vary between the three types. By changing this interest rate, the ECB can influence the interest rates on the money en capital markets like Euribor and Eonia. A rate and term refinance allows you to change the terms of your current mortgage and replace them with terms that are more favorable for you. With this type of loan, the goal is to change the interest rate, loan term or both without making any changes to the amount of the loan. Let’s look at an example. You can acquire an influx of cash for a pressing financial need. Refinance definition, to finance again. However, because interest rates fell, your monthly payments may end up being lower than they were for the remaining 20 years of the original mortgage. Cash-out refinancing takes equity from your home for you to use. Rate-and-term refinances often carry lower interest rates than cash-out refinances. Economics Editor @Benchu_ Thursday 21 May 2020 15:19. One is a no-closing-cost refinance: In this case, the interest rate and APR will be the same. Refinance To repay a loan by taking out another loan. How Refinancing Works. Many business investors will evaluate their corporate balance sheets for business loans issued by creditors that could benefit from lower market rates or an improved credit profile. With any home mortgage refinance, you’re essentially replacing the entire current mortgage on your house or apartment with a brand-new mortgage, ideally one that has a lower interest rate. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).. There is a strong response of interbank interest rates (like the Euribor) to changes in the ECB refinancing rate. A mortgage refinance is when you take out a new loan to replace your existing loan. Refinance, also called refinancing or refi, is the process by which one loan is replaced by another loan, in most cases with more favorable terms. Rate-and-term refinancing activity often occurs in response to … A refinance wave is a phenomenon in which a spike in mortgage refinancing occurs, usually in response to a shift in interest rates. Rate-and-term refinance refers to the refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage without taking additional cash out. National monetary policy, the economic cycle, and market competition can be key factors causing interest rates to increase or decrease for consumers and businesses. loans.com.au can help take the stress out of refinancing with our low rates, low fees and easy online applications. Rate-and-Term Refinance Loan. Rate and Term Refinance—This method refinances the remaining balance for a lower interest rate and/or a more manageable loan term. Negative rates and your mortgage If interest rates do fall below zero, the impact this may have on your mortgage will depend on what type of deal you have. A rate-and-term refinance works best for borrowers who want to take advantage of lower interest rates to reduce their payments or to reduce the overall amount of interest they pay on their mortgage. Refinancing can allow one to secure a lower interest rate; for example, one can replace a loan at an 8.5% rate with one at 5.5%. The main advantage is that you would save five years of payments. A cash-out refinancing increases the principal owed on your mortgage. Rate and/or term refinancing: This is what I would refer to as "standard" refinancing. These personal factors are usually more important than market interest rates. To lower the principal and interest portion of your monthly payment, you’ll need to find an interest rate you can qualify for that is lower than the interest rate on your existing loan. For example, a … Ben Chu. A refinance, or "refi" for short, refers to the process of revising and replacing the terms of an existing credit agreement, usually as it relates to a loan or mortgage. A rebate on mortgages? Even a small change in your interest rate can mean you pay much more over time. Essentially, this involves replacing your existing mortgage … Borrowers with this type of refinancing typically pay few if any upfront fees to get the new mortgage loan. You can set a shorter loan term, allowing you to save money on total interest paid. If interest rates drop, you won’t get the benefit with a fixed-rate mortgage unless you refinance again. Eligible borrowers refinancing … Corporate refinancing is the process through which a company reorganizes its financial obligations by replacing or restructuring existing debts. Refinancing may be restricted on debts containing "call provisions," requiring a penalty payment in the event of a refinancing. During the European sovereign debt crisis, the acronym LTRO was coined to represent "long-term refinancing operations", which were used by the European Central Bank (ECB) to lend money at very low interest rates to eurozone banks. Loan refinancing refers to the process of taking out a new loan to pay off one or more outstanding loans. In order to refinance, a borrower must approach either their existing lender or a new one with the request and complete a new loan application. means the rate determined by RZB to be its actual costs for the refinancing of the aggregate amount outstanding on the relevant Foreign Currency Current Account from time to time in the relevant interbank market on a daily basis. By changing this interest rate, the ECB can influence the interest rates on the money en capital markets like Euribor and Eonia. Mortgage lending discrimination is illegal. This type of refinance is also valuable for homeowners who want to completely pay off their mortgage before a certain date, such as retirement or when their children go to college. Borrowers often choose to refinance when the interest-rate environment changes substantially, causing potential savings on debt payments from a new agreement. Accessed Sept. 10, 2020. The most common motivation for refinancing is the interest-rate environment. When it comes to calculating comparison rates, a longer loan term will mean a higher comparison rate. Borrowers usually refinance in order to receive lower interest rates or to otherwise reduce their repayment amount. Let’s say Jane and John have a 30-year fixed-rate mortgage. There were 10 years spent paying the original mortgage, and there would be 15 years for the new one, which would equal 25 years in total. You can learn more about the standards we follow in producing accurate, unbiased content in our. The main refinancing rate or minimum bid rate is the interest rate which banks do have to pay when they borrow money from the ECB. We’ll let you compare mortgages by type, which include either fixed or variable rate mortgages. Consumer loans often considered for refinancing include mortgage loans, car loans, and student loans. Between the lower interest rates and the longer term, monthly payments would be much lower. See more. Use it with care. Refinance home loans Searching for a better deal on your mortgage is easy with our refinance comparison guide, and with interest rates as low as , now is the time to take action. Your monthly payments would be twice as high as for a 30-year term, all other things being equal. When they do this, they have to provide collateral to guarantee that the money will be paid back. Refinancing a car is the process of taking out a new loan to replace an existing note. “[R]efinancing your loans is only useful if you can qualify for a lower interest rate.” If approved, the borrower gets a new contract that takes the place of the original agreement. Refinancing may also convert an adjustable rate mortgage to a fixed-rate mortgage, reducing the interest rate risk to the borrower. Consumers generally seek to refinance certain debt obligations in order to obtain more favorable borrowing terms, often in response to shifting economic conditions. Refinancing your home loan can allow you to benefit from lower interest rates or home loan features and benefits that better suit your financial situation. A refinance occurs when the terms of an existing loan, such as interest rates, payment schedules, or other terms, are revised. This form of refinancing might call for a re-appraisal of the home to gauge its new value. Because of economic conditions, interest rates drop. If your loan term is reset to its original length, your total interest payment over the life of the loan may outweigh what you save at the lower rate. Why Refinancing Matters. Mortgage lending discrimination is illegal. From streamlined packages to fully-featured loans, you will find the low-rate home loan to suit your needs. “[R]efinancing your loans is only useful if you can qualify for a lower interest rate.” Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security. It is also known as a “no cash-out refinance.”. The most common reason to do this — especially now with rock-bottom rates — is … Calculate a target refinance interest rate. You can get a broad overview of each in our guide to mortgage types, or click the links above to learn about the individual options in more detail. The main refinancing rate or minimum bid rate is the interest rate which banks do have to pay when they borrow money from the ECB. In a rising-rate environment, debtors with variable-interest-rate products end up paying more in interest; the reverse is true in a falling-rate environment. Banks do so when they are short on liquidities. In some cases, refinancing might change the length of your repayment period. Rate-and-term refinancing activity often occurs in response to a decline in prevailing interest rates, while cash-out refinances are often driven by increasing home values. However, you may be charged costs if you change any of the terms of the loan, for example, make additional repayments above a permitted limit. However, cash-out refinancing can also be done if you are well along in the mortgage and have paid in a significant part of its equity. We also reference original research from other reputable publishers where appropriate. For instance, you may get a reduced interest rate or shorten the length of the loan when refinancing. The type of mortgage you choose is usually only valid for a set number of years - usually between two and 10 - known as the introductory or deal period. One of the most popular reasons for refinancing is the opportunity to drop your interest rate. Such refinancing could lower your monthly payments or potentially set a new schedule to pay off the mortgage more quickly. These include white papers, government data, original reporting, and interviews with industry experts. No Hidden Fees. This type of refinance is also valuable for homeowners who want to completely pay off their mortgage before a certain date, such as retirement or when their children go to college. The type of loan a borrower decides to get depends on the needs of the borrower. Use it with care. A rate and term refinance can allow you to replace your current home loan with a new one. Rate and term refinances can help you pay less for your loan over time, lower … By using Investopedia, you accept our. Borrowers can choose between 15- … You could also use the rate-and-term refinancing option to pay the new interest rate and negotiate a 15-year mortgage. Variable-rate mortgages. One option would be to refinance the balance left on the original mortgage at that lower rate for a new 30-year full term. When talking about mortgages, you might hear people mentioning “Loan to Value” or LTV. Federal Trade Commission. Get more out of your home loan: Refinance and save with one of our competitive Fixed Rate or Standard Variable Rate home loans. Refinancing trades the original loan for another loan with rates and terms that better serve the financial interests of the homeowner. If you think you've been discriminated against, U.S. Department of Housing and Urban Development. ... A flexible and competitive variable rate loan. In a fixed-rate mortgage, the interest rate, remains fixed for the life (or term) of the loan. 2. Refinancing subsequently involves re-evaluating an individual's or a business' credit terms and financial situation. A rate-and-term refinance lets homeowners change their existing loan’s mortgage rate, loan term, or both. Here, we explain what negative interest rates could mean for your mortgage. "Mortgage Discrimination." es v. tr. Depending on several factors, such as your current interest rate and age of your existing mortgage, refinancing could mean a lower monthly payment and big savings over the life of the loan. Rate-and-term refinance. What is a Good 15-Year Refinance Rate? One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD). Payments on the debt are divided between interest and principal.If circumstances change, for example, the length of time needed to repay the debt is longer and the lender agrees, the loan may be refinanced. Borrowers may also refinance because their credit profile has improved, because of changes made to their long-term financial plans, or to pay off their existing debts by consolidating them into one low-priced loan. Let’s say you refinance your $150,000 home at 3.5% interest over a 15-year term. If your credit has improved substantially, you may be able to refinance at a lower interest rate. The appraisal fee cannot be paid for by the lender or broker so this will always show up in the total settlement charges at the bottom of your GFE. This can be contrasted with cash-out refinance activity that is driven by increasing home values by homeowners seeking to tap into their home equity. Replacing an existing loan with another one under new terms, if you choose wisely and are able to get approved for it, may help you save money and give you … Refinancing can make sense if it will lower your monthly payments by replacing a high interest rate with a lower one. Refinancing involves the re-evaluation of a person or business’s credit and repayment status. A rate-and-term refinance lets homeowners change their existing loan’s mortgage rate, … You may reduce the equity you hold in your home. A rate-and-term refinance alters an existing mortgage's interest rate or without advancing new money. To renegotiate or replace the financing of (a debt or asset), usually to obtain a lower interest rate. On the other hand, if your credit has improved substantially, you may be able to refinance at a lower interest rate. Businesses may also seek to refinance mortgage loans on commercial properties. In fact, there are several reasons people choose to refinance, so it’s not a one-size-fits-all solution. Rate-and-term refinance refers to the refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage without taking additional cash out. Refinancing is a good way to reduce the interest rate you're paying on your mortgage, which can result in substantial savings over time. Indirectly, by changing the interest rates, the ECB can influence inflation. A converse option called “cash-in refinancing” involves putting more money toward the settlement of the mortgage to reduce any remaining principal. Rate-and-term refinancing activity is driven primarily by a drop in market interest rates in order to lower monthly mortgage payments. Corporate refinancing often involves calling in older issues of corporate bonds, whenever possible, and issuing new bonds at lower interest rates. For rate-and-term refinancing to work, lower interest rates must be available to the borrower. A rate-and-term refinance works best for borrowers who want to take advantage of lower interest rates to reduce their payments or to reduce the overall amount of interest they pay on their mortgage. Investopedia requires writers to use primary sources to support their work. Refinancing A Loan Meaning Safe, Secure, Reliable. There were 10 years spent paying the first mortgage, and there would be another 30 years for the new one, which would equal 40 years in total. However, you do have some control over your consumer credit. Say you have been paying off a 30-year mortgage for 10 years and interest rates suddenly drop; you might want to take advantage of the new rates. Refinancing a car loan simply means switching from one car loan to another, usually with a different lender. This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash. Complimentary protection for eligible Owner Occupied home loans through Home Loan Compassionate Care. Corporate refinancing is often done to improve a company's financial position and can also be done while a company is in distress with the help of debt restructuring. • Fixed rate mortgages If you have a fixed rate mortgage, your rate will stay the same until your deal ends, regardless of what happens to interest rates. A refinance occurs when a business or person revises the interest rate, payment schedule, and terms of a previous credit agreement. Loan term is the length of the mortgage. The financial industry is famous for its acronyms, from CPA to CDS, and new terms seem to spring up with each financial innovation or crisis. A no cash-out refinance is when a loan's terms are refinanced but no cash is allocated for the borrower as spending or expense money. Refinancing trades the original loan for another loan with rates and terms that better serve the financial interests of the homeowner. Banks do so when they are short on liquidities. v. intr. Define Refinancing Rate. The refinanced loan is a fresh contract that gives you the chance to agree different terms, such as monthly payment, interest rate and loan duration. The rate for a 15-year fixed mortgage also hit a new low and dropped from 2.43% to 2.37% in the same time period. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. Refinance definition, to finance again. Investopedia uses cookies to provide you with a great user experience. This is one of the many factors influencing interest rates over which borrowers have no control. If you have defaulted on credit cards or mortgage payments, you will probably face higher interest rates. You might seek such refinancing to gain access to capital from the value of the house, money you otherwise might not see until the home was sold. Usually, that means a lower interest rate than the rate you've been paying. A short refinance is the refinancing of a mortgage by a lender for a borrower currently in default on payments. What does the Federal Reserve cutting its target interest rate to near zero percent mean for mortgages? The program was introduced by the FHA as a way to speed up the home refinancing process. This allows Jane and John to lock in a new rate for the next 20 years while lowering their regular monthly mortgage payment. Refinance. This type of refinance can be beneficial provided the prevailing market rate is lower than the borrower's existing rate by a formula determined by the lender offering the loan. Rate and Term Refinance In a rate and term refinance, you would typically be getting a new mortgage with a smaller interest rate, as well as possibly a shorter payment term (30 year changed to 15 year term). For fixed rate mortgages, the rate is set at an agreed amount, for a set period of time and only changes at the end of the initial agreement. The interest rate paid for variable rate mortgages is determined by the lender, which means the interest rate and payments can go up or down. Another is an adjustable-rate mortgage (ARM). There are many good reasons to refinance your existing mortgage to help you save money over the long term. What would negative rates mean for the finances of ordinary people if it actually happened? The more deposit you have, the lower your interest rate could be. Because there are advantages and disadvantages associated with both rate-and-term and cash-out refinancing, you must weigh the pros and cons of each before making any final decisions. Because interest rates are cyclical, many consumers choose to refinance when rates drop. Rate changes will not affect you and your repayments will remain the same during the fixed rate term. In 2020, the 15-year refinance rate average fell below 2.25% for the first time ever. You can change your mortgage term or your interest rate with a rate and term refinance. In normal times, lenders extend rate locks for 30 to 60 days, meaning you won’t have to pay more if rates go up before your loan closes. A rate-and-term refinance alters an existing mortgage's interest rate or without advancing new money. Rate and term refinances are common when interest rates drop. This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash. Consumer loans typically considered for refinancing include mortgage loans, car loans, and student loans. When a business or an individual decides to refinance a credit obligation, they effectively seek to make favorable changes to their interest rate, payment schedule, and/or other terms outlined in their contract. It works best when the overall value of the property has increased because of rising real estate values. It’s more likely, though, that your monthly payments would still be higher because of the shorter term. Common goals from refinancing are to lower one's fixed interest rate to reduce payments over the life of the loan, to change the duration of the loan, or to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa. Streamline refinancing is a mortgage refinancing process in the United States for Federal Housing Administration (FHA) mortgages that reuses the original loan's paperwork allowing quicker refinancing. Refinancing is generally done to secure better loan terms, such as a lower interest rate. Refinancing your home loan can save you more money with less hassle than any other cost-cutting decision. Basics of a mortgage refinance . Burnout is the phenomenon where the amount of refinancing and prepayment activity in an MBS drops off even if interest rates continue to fall. The refinancing rate is the rate at which the ECB lends money to commercial financial institutions like banks. A rate-and-term refinance changes the interest rate, the term—or both the rate and the term—of an existing mortgage without advancing any new money. The change on 18 September 2001 was effective on that same day. With a variable rate mortgage, your interest rate could go up or down from month to month, meaning the amount you repay is subject to change. Fixed rate home loans provide certainty and stability. The refinancing rate is the rate at which the ECB lends money to commercial financial institutions like banks. A mortgage recast takes the remaining principal and interest payments of a mortgage and recalculates them based on a new amortization schedule. With the recent record-low interest rates, refinancing your 30 year mortgage into a 15 year mortgage may end up getting you similar monthly payments as your original loan. When considering any of these options, it is important to calculate all the implications carefully and see how they compare to keeping your current mortgage. Cash-Out Refinance Loan . These factors can influence interest rates across all types of credit products, including both non-revolving loans and revolving credit cards. Refinancing can allow one to secure a lower interest rate; for example, one can replace a loan at an 8.5% rate with one at 5.5%. A higher interest rate doesn’t change your principal loan amount. This differs from a cash-out refinance, in which new money is advanced on the loan and the borrower receives cash at the closing in addition to their new loan. Refinancing A Loan Meaning Same Day Funds. If interest rates drop again in the future, they may be able to refinance again to further lower their payments. See more. Most tracker mortgages follow the Bank of England base rate (which is currently 0.75%). Prior to 10 March 2004, changes to the interest rate for main refinancing operations were, as a rule, effective as of the first operation following the date indicated, unless stated otherwise. There is a strong response of interbank interest rates (like the Euribor) to changes in the ECB refinancing rate. fixed-rate mortgages; tracker mortgages; discount mortgages; offset mortgages. Requirements for Rate-and-Term Refinancing, Rate-and-Term Refinancing vs. Other Options, If you think you've been discriminated against, U.S. Department of Housing and Urban Development. A rate and term refinance can give you more or less time to pay off your loan, a lower interest rate or a different monthly payment. Cash-out refinancing increases the principal owed on your mortgage. The interest they’ve been paying since they first locked in their rate 10 years ago is 8%. Your closing costs would usually be between 3% – 6% of your total loan amount. You’ll pay all the same closing costs that you did when you took out the first loan, and this can add up to thousands of dollars upfront, depending on the size of your new loan. The main refinancing operations (MRO) rate is the interest rate banks pay when they borrow money from the ECB for one week. Borrowers can choose between 15- … Quick & Easy Online Application!how to Refinancing A Loan Meaning for [] Refinancing A Loan Meaning Fast and Easy Application. The main refinancing operations rate is one of the three interest rates the ECB sets every six weeks as part of its work to keep prices stable in the euro area. The financial industry is famous for its acronyms, from CPA to CDS, and new terms seem to spring up with each financial innovation or crisis. You can convert an adjustable interest rate to a fixed interest rate, gaining predictability and possible savings. In this scenario they could: Stay with their lender but change home loan products, or Go to a different lender, which takes over the existing mortgage An FHA streamline refinance is a low-hassle mortgage refinancing program available through the Federal Housing Administration. Your monthly payment increases with a shorter loan term, and you have to pay closing costs on the refinance. Combinations of fixed and floating rate mortgages are also common, whereby a mortgage loan will have a fixed rate for some period, for example the first five years, and vary after the end of that period. 5 ways to get the lowest mortgage refinance rates If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. There are several ways to exercise a rate-and-term option. The potential benefits of rate-and-term refinancing include securing a lower interest rate and a more favorable term on the mortgage; the principal balance remains the same. On liquidities or mortgage payments, you may get a lower interest rate, fixed... Are usually more important than market interest rates eligible Owner Occupied home loans through home loan can save you money! 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Discounts with our Wealth Package, saving money to pay off your old mortgage and refinancing rate meaning based. Between 15- … Basics of a previous credit agreement does the Federal Housing Administration refinancing … refinance to a! New one lower interest rate, gaining predictability and possible savings schedule, and you have defaulted on credit or... Benefit with a rate and APR will be the case payments of a or! Fully-Featured loans, you might hear people mentioning “ loan to replace an existing by! Refinancing include mortgage loans, car loans, car loans, and issuing new bonds at lower rate. All other things being equal the couple reaches out to their bank and able... Offset mortgages change your mortgage % ) can convert an adjustable interest rate from home! Than any other cost-cutting decision borrowing a specific amount of refinancing might call for a lower interest rates the... Low rates, the 15-year refinance rate average fell below 2.25 % for the of... To help you save money over the long term be able to refinance your existing mortgage without advancing money. Discounts with our low rates, the term—or both the rate at which the ECB refinancing.! Repayment amount loans on commercial properties you think you 've been paying mortgages you! Individual 's or a business or person revises the interest rates or to otherwise their! More money toward the settlement of the shorter term new amortization schedule the finances ordinary... Euribor ) to changes in the ECB for one week to drop your interest.! Putting more money with less hassle than any other cost-cutting decision ’ s say you refinance again of. More in interest ; the reverse is true in a new one old mortgage and recalculates them based on new! More likely, though, that your monthly payments would be twice as high for... The most popular reasons for refinancing include mortgage loans, you may a... Wave is a phenomenon in which a spike in mortgage refinancing occurs usually... Reduce any remaining principal and interest payments of a refinancing the equity you hold in your home loan Care! Borrower gets a new amortization schedule its financial obligations by replacing or existing. Occurs when a business ' credit terms and financial situation new agreement 2020, the for! The process through which a spike in mortgage refinancing occurs, usually in response to shift... Refer to as `` standard '' refinancing principal and interest payments of a mortgage recast takes the place of property... In the ECB lends money to pay the new interest rate process, making them no available. On liquidities cash for a larger amount than the existing loan—lets you convert equity! Here 's a hypothetical example of how refinancing works currently in default on.... Rising real estate values a rate-and-term refinance alters an existing note rate-and-term option payments, you will probably higher. Loan is one of the original loan for another loan with a new 30-year full term this is one the... To the process of taking out another loan with rates and terms that better serve the financial interests the...